Baseball has remained a sustainable sport for many reasons, and while it would be nice if it were as simple as the catchy tune about going to the ballpark, grabbing some Cracker Jack, and shouting "Three strikes, you're out," the reality is that baseball is a business. And over the past few decades, money has been changing the game.
In 2023, Shohei Ohtani entered into free agency after playing six years with the Los Angeles Angels. The offseason brought spirited speculation over where he would sign.
It was no surprise that the 2018 Rookie of the Year, two-time American League MVP, two-time Silver Slugger award winner and five-time All-MLB First Team recipient was highly pursued by several teams – and everyone was ready to put a big check on the table.
Several teams were rumored to be in the Ohtani sweepstakes. However, experts believe that one team stood out above all the rest: the Los Angeles Dodgers.
Regardless of the rumors, it was clear that becoming a World Series Champion was a top priority for Ohtani. So the question was, which team would give him the best shot of getting there?
After about a month of quiet negotiations, Ohtani took to his Instagram to announce the news:
He had signed a record-breaking contract of $700 million with the Los Angeles Dodgers.
This was the highest contract ever signed in MLB history. Previously, the record was held by Ohtani’s former teammate, Mike Trout, who signed a 12-year $426.5 million contract with the Los Angeles Angels in 2019.
The deal worked out between the Dodgers and Ohtani was for 10 years with a $680 million deferral of payment until the contract was up, which ESPN reported was Ohtani’s idea. This means that his annual salary will be $2 million until 2034, and then $68 million annually for the 10 years after that.
It is not surprising that throughout MLB history, the big-name teams land the big-name players. However, this contract made it obvious that in the business of baseball, a canyon was forming between the smallest-market teams and the largest.
The 2024 season resulted in a World Series between the two historic MLB tycoons: the Los Angeles Dodgers and the New York Yankees. The Los Angeles Dodgers would go on to win, making Ohtani a World Series champion in his first season with the team.
Then, into the offseason this past December, something shocking happened.
Free agent Juan Soto and the New York Mets surpassed Ohtani’s contract with a deal of $765 million for 15 years and no deferral of payment, deeming Soto the new record-holder.
Note: Shohei Ohtani does not appear on this chart because of the deferral of payment that was agreed to in his contract.
The Moneyball Philosophy
For several decades after the MLB’s inception in 1903, the best players regularly ended up with the wealthiest teams. However, in 1965, the league held its first-ever draft which gave an opportunity to bottom-feeder teams to acquire better talent.
This raised new questions for baseball front offices to deliberate when deciding who to draft. While this improved organizations’ chances at adding the best amateur players to their rosters, it didn’t solve the money issue. And as for free agents, wealthier teams still had better luck signing star players.
So how does scouting work?
The traditional scouting theory relies on scouts evaluating players based on physical abilities like speed, arm strength, and hitting, without focusing on statistics. Scouts assess mechanics and assign grades to players, emphasizing tools like agility, arm motion and bat speed.
This was the dominant strategy utilized until the Oakland Athletics and its general manager Billy Beane shifted focus from traditional scouting to advanced data and statistics in what became known as the moneyball philosophy.
Following the loss to the New York Yankees in the 2001 playoffs and the loss of three star players, Beane got to work. Operating with a smaller budget than most of the league, the A’s couldn’t compete financially with other teams when acquiring new talent, so Beane realized he had to outsmart—not outspend—his competition.
Beane and his front office, including assistant general manager Paul DePodesta, turned to sabermetrics—a data-driven approach to evaluating players' performance.
Inspired by the work of economist Bill James, sabermetrics challenged conventional wisdom in baseball by focusing on advanced statistics that better correlate to a player’s contribution to winning games.
The key metrics, particularly on-base percentage (OBP) and slugging percentage (SLG), were used to uncover undervalued players who could contribute to the team’s success while not costing the organization big bucks. The strategy was revolutionary because it disregarded traditional scouting and physical traits in favor of numbers that more accurately predicted a player’s value.
“This data-driven approach enabled the A’s to build a competitive team despite their financial constraints, setting records for consecutive wins — seven AL Western Division titles and 10 playoff appearances — and proving that data analytics could level the playing field in professional sports,” wrote Business Magazine.
The success of Billy Beane and the Oakland A’s proved the power of the moneyball philosophy, and because of this, the strategy changed the way teams scout their players.
“As analysts have transitioned to baseball’s front offices, sabermetric thinking has exerted a noticeable impact on how the sport is played,” wrote Matt Kelly, former MLB reporter and researcher who now manages multimedia content at MLB.
However, now that the use of sabermetrics is a common practice throughout the league, it no longer has the same competitive edge for small-market teams.
A Growing Disparity
Since the Oakland A’s had its odds-defying season in 2002, the economic disparity between teams has only grown wider.
In 2024, there was an over $200 million gap between the New York Mets, who had the highest payroll, and the Oakland A’s, who had the lowest.
The average payroll (in millions) of all 30 MLB teams are shown in the chart below. To explore total payroll by year, click on the drop down menu to select specific seasons.
In the chart on the right, teams appear on the y-axis from highest average payroll over the last 12 seasons at the top, to the lowest payrolls at the bottom. Playoff bracket appearances were calculated based on the number of times a team appeared in a wild card, divisional, or championship series and if they made it to the World Series. Because higher-seeded teams start in the divisional series, rather than the wildcard, a point was added to a team’s total number of appearances every time it started its postseason run in the divisional. This was to ensure that all teams at the divisional bracket level would have an equal number of total appearances. For example, in 2024, the Dodgers, Yankees, Phillies and Guardians received two points for their divisional appearances because they did not play in a wildcard game. Whereas, the Padres, Mets, Royals and Tigers received one point for a wildcard appearance and one point for a divisional appearance.
In the last 12 seasons, the top 15 wealthiest teams appeared in 118 more playoff bracket appearances than the bottom 15. While every team across the payroll spectrum made it to the playoffs at least once since 2013, a noticeable dominance in appearances by the Dodgers, Mets, Yankees, Astros and Braves is observed. This is partially because the weighted calculation of playoff bracket appearances takes into account how far teams make it in the playoffs. Both the Dodgers and the Astros have made it to four World Series since 2013 and won twice.
This shows that money had consistent influence on success.
Trends show that as average payroll increases, so does average win percentage during the regular season. The same trend emerged for total playoff bracket appearances.
Additionally, since 2013, 11 out of 12 World Series winners were in the upper half of payrolls when they won, while six of those 11 were in the top 20%.
The Houston Astros were the only team in the last 12 seasons to win a World Series while ranking in the bottom half of payrolls. The team won its first-ever title in 2017 and ranked 13th in payroll that year. However, two years later, reporters Ken Rosenthal and Evan Drellich published an investigation in The Athletic exposing the Astros for using cameras to illegally steal signs from opponents in the 2017 season.
The Salary Cap Debate
There has been lively debate over what should be done about the payroll gap between sports writers, MLB officials, team owners and fans alike.
Implementing a salary cap, like those of the National Football League and National Basketball League, have been a large piece of the conversation, but hasn’t come without controversy.
Contentious negotiations between the MLB and the Players Association have ensued in recent years about the adoption of a league-wide salary cap. The Players Association, or MLBPA, is the labor union that serves as the bargaining agent for major and minor league players. The union has consistently opposed the implementation of a salary cap, saying a free-market allows players to maximize their value, according to Bleacher Report.
During a recent spring training media event, MLB commissioner Rob Manfred said that the economic disparity in the sport is at the top of his list of concerns, emphasizing that the system needs changing.
The current collective bargaining agreement between the MLB and MLBPA doesn’t expire until Dec. 2026, so until then, new negotiations of a salary cap will have to wait.
In the meantime, the league has created a competitive balance tax, also known as a luxury tax, which regulates the total amount of money teams can spend on their rosters, according to MLB.
Last year, the payroll threshold was set to $241 million which meant the Dodgers, Mets, Yankees, Phillies, Braves, Rangers, Astros, Giants and Cubs were taxed a specific percentage, according to ESPN.
A Sport of Luck
Baseball is not an exact science, and as much as talent and money helps, magic can happen.
"You've seen teams with low payrolls win, and teams with high payrolls lose, but those big markets have an advantage," Andrew Benintendi, Chicago White Sox left fielder, said to ESPN.
Contentious negotiations between the MLB and the Players Association have ensued in recent years about the adoption of a league-wide salary cap. The Players Association, or MLBPA, is the labor union that serves as the bargaining agent for major and minor league players. The union has consistently opposed the implementation of a salary cap, saying a free-market allows players to maximize their value, according to Bleacher Report.
The Tampa Bay Rays, Cleveland Guardians and Arizona Diamondbacks have all made it to the World Series once in the last nine seasons with some of the smallest operating budgets – which is far better than the Los Angeles Angels, who have one of the highest payrolls, can say.
So with Opening Day quickly approaching at the end of this month, could an unforeseen underdog get lucky this season?
